A strong quarterly production report from Australia’s biggest resources company pushed the sharemarket to a six-year closing high for the third day in a row.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each lifted 0.6 per cent on Wednesday to 5576.7 points and 5567 points, respectively, as inflation accelerated to its highest rate in 2½ years.

Shares pushed higher at the open with investors taking a positive lead from Wall St overnight. Asian markets provided mixed cues in the afternoon.

The Jakarta Composite Index added 0.5 per cent to 5107.7 points after Joko Widodo was officially declared the winner of the Indonesian Presidential elections on Tuesday night.

In local news the dollar spiked and shares were supported after Australian Bureau of Statistics data showed the consumer price index rose 0.5 per cent in the June quarter, posting a 3 per cent gain for the 2014 financial year. The Reserve Bank of Australia targets an annual inflation rate within the range of 2 per cent to 3 per cent.

Resources giant BHP Billiton jumped 1.2 per cent to a near five-month high of $38.98 after providing an even more positive outlook than expected as it upgraded iron ore production guidance for the current financial year. As was widely predicted, the miner’s Pilbara operations beat production guidance for the June quarter.

On Wednesday the spot price for iron ore, delivered in China, dipped 0.6 per cent to $US95.40 per tonne. When the ASX closed, Dalian iron ore futures trading in China was tipping another fall overnight.

The big four banks were higher amid hopes of continuing low interest rates.

Among other major blue-chip stocks Telstra Corporation ascended for the tenth consecutive session, up 0.4 per cent to $5.45. Woolworths gained 0.7 per cent to $35.94, and Wesfarmers added 0.7 per cent to $43.65.

2:55pm on 23 Jul 2014

More on Lynas, which has been on a tear in recent days.

This from reporter Sally Rose:

BBY Ltd analyst Mike Harrowell , who owns Lynas stock, said investors seemed to be heartened that the company has now passed the point by which it would be required to disclose if it was at risk of missing June quarter production guidance ahead of a formal update at the end of July.

“If Lynas does meet its production guidance it will mark an important milestone in the Malaysian processing plant achieving profitability,” said Mr Harrowell.

2:37pm on 23 Jul 2014

Here are the winners and losers today.

We've been trying to ignore it, but Lynas is up big time once again - by 17.7 per cent today and up almost 50 per cent in the past three sessions.

The market responded warmly to Sims Metal Management's plan to quadruple earnings in five years, while uranium Paladin Energy claims the wooden spoon.

Best and worst performers in the ASX 200 today.

2:27pm on 23 Jul 2014

After almost topping 5600 in the early afternoon, the benchmark index eased to nonetheless post a solid gain of 33 points, or 0.6 per cent, and close at 5576.7.

The All Ords was up a similar amount at 5567.0.

The metals and mining sector was the best performing, up 1.1 per cent for the day after BHP posted blockbuster quarterly production reports, sparking optimism on the sector. Rio gained 0.6 per cent and Fortescue 0.2 per cent.

Woodside added 1.2 per cent.

Banks enjoyed a nice bounce after mixed results in recent sessions. The big four all gained.

Wesfarmers and Woolworths advanced 0.7 per cent.

Among the laggers were Suncorp, which was down 0.6 per cent, and Incitec Pivot, which fell 1.6 per cent.

Two of the country's largest banks haveslashed their fixed mortgage rates, as lenders seek to win new customers by allowing borrowers to lock in longer-term interest rates of less than 5 per cent.

The Commonwealth Bank and National Australia Bank became the latest banks to cut fixed rates, each giving borrowers the chance to lock in historically low rates over the longer term.

After the Commonwealth cut its five-year loan to 4.99 per cent, a new low for the bank, NAB responded by matching the reduction and also cutting its three and four-year loans.

With banks tapping overseas markets for cheaper funds, NAB's four-year loan was cut to 4.99 per cent and its three-year product to 4.94 per cent.

1:40pm on 23 Jul 2014

In testimony before the US Senate this week, US Fed chair Janet Yellen argued that:

“While prices of real estate, equities, and corporate bonds have risen appreciably and valuation metrics have increased, they remain generally in line with historical norms.”

If we focus on the all important equity market, such a statement seems reasonable at face value. After all, as at mid-July, the S&P 500 price to 12-month forward earnings ratio is around 15.6, which is only slightly above its average since the late 1980s of 15.4.

Relative to US 10-year government bonds yields, moreover, US equity valuations still appear on the cheap side, with the differential between the market’s forward earnings yield (inverse of the forward PE ratio) and 10-year government bond yields at 3.8%, or well above the average since the late 1980s of 1.6%.

So far so good; but here’s where it gets complicated. For starters, part of recent history includes a notable period of internet-related bubble conditions from the late 1990s to early 2000s. In the six years to mid-2002, for example, the PE ratio averaged an uncomfortably high 20.2 times forward earnings. Excluding this period, the forward PE ratio averaged only 13.8, suggesting current valuation levels of almost 16 may be getting uncomfortably high.

What’s more, valuations relative to interest rates are being supported by unusually low bond yields. At 2.5%, 10-year government bond yields are about half their average level since the late 1980s. Yields are also still well below their decade average of 3.4 per cent.

The other lingering concern with the US equity market is the sustainability of corporate profits. Again, price-to-earnings valuations have also been supported by an unusually strong upward trend in the US corporate profit share over the past 15 years.

US shares looks OK value on the surface, but they may be more expensive that they appear. Source: BetaShares

1:23pm on 23 Jul 2014

SomnoMed, an upstart medical device maker challenging market giant ResMed, has delivered a record quartererly sales result that has boosted its share price by 14 per cent.

The market minnow, with a market capitalisation of $72 million, sold 11,973 units of its mouth guard-like device that treats obstructive sleep apnoea in the three months ended June 30. OSA is caused when obstruction of the upper airway causes breathing difficulties and is commonly associated with snoring.

The result was 17.6 per cent higher than the same period last year and was the highest quarterly sales result in the company’s history. Total sales for 2014 financial year of 43,438 units was 21 per cent above the previous year.

Off the back of the strong result, which beat analysts’ expectations, SomnoMed provided guidance for the first time. The company said it would sell more than 55,000 devices in the 2015 financial year. Wilson HTM analyst Shane Storey said this was about 8 per cent higher than his forecast.

“Greater visibility on the profit outlook should be well received by the market,” Dr Storey said in a note. “SomnoMed is moving towards genuine earnings growth, which we expect to see valued on a ‘medtech’ multiple.”

SomnoMed shares have soared by 13.8 per cent to trade at $1.82.

Despite the significant growth, SomnoMed still has a way to go before it challenges companies like ResMed and Philips in the $US8 billion ($8.5 billion) sleep apnoea market. Its guidance for the 2015 year represents revenue in excess of $32.5 million at current exchange rates.

At its full-year results announcement, slated for Friday August 1, analysts expect ResMed to report revenue of $US1.6 billion.

ResMed shares are up 1 per cent to $5.30.

1:15pm on 23 Jul 2014

Online skilled job vacancies are down for engineers, but up in building, construction and healthcare as the two-speed economy shifts gears away from mining in the west and back towards south-eastern Australia.

The federal Department of Employment’s monthly job vacancy report showed an increase of 1.8 per cent in skilled vacancies for June, an increase of 12.6 per cent from a year ago.

“The level is not high, but it is showing a few signs of life again – demand for labour has a little bit of life in it,” National Australia Bank’s senior economist David de Garis said.

In the past year, skilled vacancies have increased in 18 of the 20 occupation groups measured by the department. The strongest increase in vacancies have been in construction, up 41.6 per cent, and in medical practitioners and nurses, an increase of 40.4 per cent. The strongest decreases were recorded for engineers and science professionals.

There has been a regional component to the changing face of job conditions, as the mining boom has weakened, creating a “notable shift” in the vacancies landscape.

“Over the past two years, Western Australia’s share of vacancieshas fallen by 4.3 percentage points to stand at 10.6 per cent in June 2014. By contrast, the share of vacancies in New South Wales has increased by 7.0 percentage points over the same period, to stand at 38 per cent in June 2014,” the report said.

The highest proportion of new vacancies were in New South Wales and Victoria, while the biggest falls were in outback Queensland, Kimberly and the Pilbara.

12:48pm on 23 Jul 2014

BHP Billiton has underscored its credentials in the race among major miners to increase export volumes, delivering a much stronger than expected 225 million tonnes in 2014 with expectations this will increase again by almost 9 per cent in 2015.

BHP boss Andrew Mackenzie is clearly putting a positive stamp on the company after 18 months in the job - managing to squeeze more from the company’s major assets while operating in a more constrained capital expenditure environment.

BHP is the latest of Australia’s big three to demonstrate that despite a weakness in the iron ore and coal prices, it is a volume game.

It’s clear that Australia’s big iron ore miners, particularly BHP and Rio Tinto (which sit at the lowest end of the cost curve) are all about pumping out more rather than choosing to restrain supply to push up the price.

BHP also posted strong production results in coal, copper and managed to significantly beat market expectation in petroleum.

It’s a result that got the investors’ pulses racing, pushing the share price up more than 1.7 per cent in the hours after the announcement.

But the elephant in the room remains.

In statements on Wednesday, BHP barely touched on the structural simplification options it has previously set out.

It has already outlined the assets which are non-core (let’s call the B group) that will be dealt with via sale or as part of a demerger.

For the big miners, it's a volume game. Photo: Michele MossopBack to top

12:37pm on 23 Jul 2014

Interesting preliminary results from Biotron's ongoing phase 2 trials of its BIT225 agent in HIV-infected subjects sparked a surge in its share price but, as always, it is a case of caveat emptor!

At end-March, Biotron had cash on hand of about $2.65 million and was burning around $330,000 a month. Since then it has received a $1.7 million R&D refund, so it has around $3 million in hand, signalling it is likely to come back to the market for fresh funds sooner rather than later.

So the market's optimistic response to today's research results - pushing the shares up 20 per cent to 12.5c – should perhaps be tempered.

Biotron claims the latest results show BIT225 can reverse HIV-induced impairment of the immune system which, if ultimately proven, could be good news. But the result is from only a small patient base, and needs much more work - and significantly more money - to be ultimately proven.

12:28pm on 23 Jul 2014

Strategists at UBS have trimmed their year-end ASX 200 targets from 5700 to 5625 based on a “marginally more cautious view on the earnings outlook”.

The P/E re-rating of the market – where investors were prepared to pay more for the same earnings - has run its course, and now investors are looking for profit growth.

That sought-after growth looks unlikely to materialise in any material way in the next financial year.

Analysts expect the market will grow earnings by 13 per cent this financial year – what the UBS team calls “a short-lived bounce” – but company analysts are ratcheting down their expectations for EPS growth in the next financial year.

Six months ago the consensus forecast for FY15 EPS growth was 8.5 per cent – now its 5.2 per cent.

Earnings growth will slow next financial year, and that will also put the breaks on the market's gains for this year. Source: UBS

12:11pm on 23 Jul 2014

Cloud-based accounting software upstart Xero has put out fresh targets for the year ahead, telling shareholders at today's AGM it is targeting an 80 per cent lift in full year revenue from the $NZ70 million booked last financial year.

Additionally, its monthly revenue run-rate will top an annualised $US100 million, which will position it for a listing on a US exchange.

At present its shares are listed only in NXZ and on the ASX.

The shares are a long way off their peak from earlier this year of more than $40, holding this afternoon at $21.85, down 30c.

11:55am on 23 Jul 2014

UBS analysts have downgraded Seek to “sell”, saying the Zhaopin initial public offer has “failed to crystallise value for shareholders despite placing the company in a stronger position to drive growth.”

UBS believes the market is valuing Seek’s domestic employment business on an ungeared FY15 P/E of 33, or 22 times FY15 EBITDA.

“This is a significant premium to Zhaopin on 16.1 times and 10.3 times respectively,” Eary wrote in a research note to clients on Wednesday.

“This premium is unwarranted especially given the domestic job market is about 70 per cent on-line penetrated versus only 15 per cent in China.”

The analysts lowered their recommendation from “neutral” and pegged Seek’s price target at $13.50 from $14.50.

UBS’s China team has placed a “buy” recommendation on 67 per cent-owned Seek China subsidiary Zhaopin and a $US16.80 price target.

“The only strong conclusion we can draw is that this report pulls the rug out from under those calling for the RBA to voice an explicit easing bias before cutting the cash rate further,” she writes.

“There are two more CPI reports for the RBA to digest by late January, with the next one reflecting the repeal of the carbon tax. We expect the RBA to leave the cash rate at the record low of 2.5% until March 2015, with risks of a delay, not a rate cut.”

RBC Capital’s Su-Lin Ong broadly agrees, noting that “while the details were mixed, the data will likely challenge the rising speculation of a possible cut by year end”. She adds that the data was negative for bonds and supportive of the A$.

“We remain with our base case view for a modest tightening cycle to begin in Q2 2015,” she says.

JP Morgan’s Stephen Walters is singing the same song, saying that “on balance, the inflation data has surprised to the upside, thanks also to an upward revision to the prior core print” and that this “elevated core print should quell chatter about near term [cash rate] eases”.

“We forecast that the RBA will be inactive on policy for some time yet,” he adds.

Vodafone Hutchison Australia has continued to bleed mobile customers despite its previous chief executive Bill Morrow promising a return to growth by early 2014.

Vodafone Australia lost 137,000 mobile subscribers in the six months ending June 30, 2014 to reach 5.2 million after wholesale customers are included, according to Hutchison Telecommunications Australia’s (HTA) financial results.

“Although VHA’s operating performance today has improved, industry growth was subdued in the saturated consumer mobile segment,” the company said. “The relatively inert customer base was another hurdle to acquiring new customers.

“Against this background, VHA’s financial performance ... was mixed.”

Customer service revenue fell by 9 per cent thanks to its shrinking subscriber base and the continuing decline of voice and text message revenue.

Telstra has continued to dominate the mobile service market and is the only major telco to report an increase in its subscriber base. It has 15.8 million mobile subscribers compared to the 9.43 million at SingTel Optus.

Telstra has continued to dominate the mobile service market and is the only major telco to report an increase in its subscriber base. Photo: Glenn Hunt

11:02am on 23 Jul 2014

The benchmark ASX200 is within spitting distance of 5600, with banks and miners riding high in a day of broad-based gains.

The last time the index was above that mark was April 2008.

Still some way to go to the pre-GFC peak of 6851.5, though...

10:42am on 23 Jul 2014

Indonesia's next president, Joko Widodo. Photo: Getty Images

A man raised in a squat built on a river bank has been elected to be Indonesia’s next president.

Joko Widodo, who hopes not just to dominate Indonesian politics but to wrest it from the hands of Indonesia’s old, corrupt elite, was late last night pronounced the winner of the country’s presidential election with a convincing 53.15 per cent of the vote.

President Joko will not begin his five-year term until October 20, but last night he suggested that his success, which was driven by the work of thousands of volunteers, not party apparatchiks, signalled a flowering of hope in Indonesian politics.

“An independent soul and sense of political responsibility blossoms in the soul of the new generation. Their enthusiasm — which had sunk into torpor — has returned,” he said.

The election, in which he claimed support “from artists to rickshaw drivers,” had been a “cultural event, not merely a political event”, adding: “Politics is full of fun; politics has some wisdom; politics is freedom”.

But Mr Prabowo, a former army strongman and now three-time failed presidential candidate, tried to pre-empt the announcement by “withdrawing” from the entire election process, saying it was the result of “massive cheating that is structured and systematic”.

“[We] will exercise our constitutional rights by rejecting the presidential election because of its legal flaws and by retracting ourselves from the ongoing process,” Mr Prabowo said.

However, his team confirmed he would not challenge the result in the Constitutional Court, which means Mr Joko’s victory now appears final.

BHP this morning reported another record annual production of iron ore, ramping up supply even as iron ore price has plunged – by 30 per cent so far this.

Nobody appears to be expecting further falls of that magnitude in the back half of 2014, but producing more of a commodity in an environment of sinking demand and prices – are they crazy smart, or just plain crazy?

It may be that flooding the market could help BHP consolidate its dominant position, as the falling price for the steel making material forces smaller miners out.

As has been well reported, lower grade ore is attracting a greater discount than previously, meaning smaller producers of lower quality ore are caught in the pincers of a higher relative cost base and a more dramatic decline in the price of their goods.

We’ve seen that with Atlas Iron’s report this week – at least on the price side.

And it's a story BHP execs have been happy to tell. This was BHP marketing president Mike Henry: "I think the dynamic of wider spreads [between the benchmark iron ore price and the price of lower grade ores] than we've seen in times when the market was tighter is absolutely here to stay."

So BHP – and Rio, perhaps Fortescue – may be able to squeeze out smaller producers, thereby reducing overall supply and improving the price.

Well, that’s the bull case.

The other side is that pumping out more and more of a commodity that people need less and less of is never a great strategy.

Analysts at Credit Suisse say they expect the benchmark iron ore price to slip to $US89 a tonne by 2015 (it currently stands at $US95 a tonne and reached $US191 a tonne in 2011).

That, they say, will reduce BHP's underlying EBIT by 14 per cent between 2014 and 2015 to $US20.3bn.

Looking much further out, the Credit Suisse analysts see BHP's annual profit, on this measure, recovering to $US23bn in 2018.

For some shareholders, as the FT bloggers point out, that could be too long to wait.

10:16am on 23 Jul 2014

Quick reaction from ANZ economists:

"We view today’s outcome, and the inflation outlook more broadly, as neutral for monetary policy. It does not appear weak enough to justify a rate cut.

"Equally, it implies little urgency for the RBA to wind back very expansionary monetary policy. That will continue to rest on confidence and activity in non-mining sectors, the labour market and the path of the Australian dollar.

"At this stage, we retain our view that the RBA will remain on hold until Q1 2015, with risks tilted towards a later start or a more protracted tightening cycle."

ANZ economists reckon the latest CPI numbers are "neutral" for monetary policy. Back to top